Fixing the Economy--Efficiency Vs Security

So, what the heck went wrong with our economy?

In business school you're taught that the purpose of a business is to increase shareholder wealth by maximizing efficiency. Efficiency here is defined as the difference between your income and your costs. In other words: profit.

The flaw of this definition is that your costs are also your neighbors income, so the short-term benefit you get by cutting costs may come around to bite you in the end when you're able to sell less to your neighbor.

Henry Ford showed a remarkable understanding of this reciprocal nature of business when he decided to raise his employees pay to the point where they could afford to buy a car. His peers cursed him because they had to raise wages as well, but Ford's decision remains as a real watershed moment in the history of American Business--and he sold a heck of a lot more cars.

The second point to consider is that any engineer will tell you, the most efficient structure can also be the least secure and often the only way to increase security is to increase redundancy. In this way, a bridge made of six regular steel beams is more secure and more easily repaired than a bridge made of two mega steel beams.

American business has been on a thirty year efficiency binge. Down-sizing and mergers and out-sourcing became the rule of thumb. Profits rose for a while, but now we find ourselves in a heck of a lot of trouble.

Nowhere is this lack of security more evident than in the financial sector. Ronald Reagan assumed that interest rates would go down if banks became more efficient and more competitive, but what good is low interest rates if banks are so unstable nobody can get a loan?

With a new president and a new understanding of our economic problems my advice is to think small and think local. If we work to foster and promote and protect more smaller, local businesses then we introduce redundancy into the system. This will decrease profits for a while, but it will also increase security.

With many banks having to reduce their scope in the wake of the credit/mortgage crisis, this may be the perfect opportunity to rebuild the concept of local banks. There will always be room for interstate and regional banks, but local banks have to be the backbone of the system if we're ever to regain the stability we once had.

Should an era of financial instability hit again, it's a heck of a lot easier to deal with if you have more smaller banks than fewer giant banks.

I'm not saying we should abandon the idea of efficiency all together, but for us to prosper in the long run, we must find a balance between efficiency and security. For thirty years we pushed and pushed and pushed for efficiency, now, unless you want to lose everything, we have to push and push and push for security until we find ourselves back in balance.

Meanwhile: Back on the Island

Just in case you forgot. There's a whole new season of LOST on the way. Not a whole lot of information from this official trailer but it does wheat the appetite.

What happened to the Republican Revolution?

They called it "the Republican Revolution", but revolutions sometimes eat their children.

They promised a new focus on the middle class, yet, adjusted for inflation, the middle class was earning less when Ronald Reagan left office than when he was elected. Today, the middle class earns less in real dollars than they did in 1970, yet the earnings of the top one percent have increased over six hundred percent.

They promised balanced budgets, yet no republican president since world war II ever balanced the national budget. They called the Democrats "Tax and Spend", yet the Republicans had another plan, spend the same or more, but don't raise taxes: not a recipe for success.

George Bush waged two, very expensive wars, but would not relent on his pre-war tax cuts. Math was never his best subject.

Instead of delivering on the things Americans wanted from them, they brought in an agenda nobody asked for. Like making abortion and death penalty laws even more divisive than they already were.

They sought to break down the barrier of church and state that had been so successful for us with prayer in school and revisiting the Scopes Monkey Trial and they maximized the mistakes of an already woefully unsuccessful drug policy that benefited no one but organized crime.

The Republican Revolution came in with great hope and great promise, but we were never able to take delivery of that promise.

It's not like we didn't give them a chance to follow through with their plan. Twenty-Eight of the last forty years saw a Republican President.

For the next two years, the Republicans are completely out of power in two of the three branches of government. Let us hope they use this time for self reflection on how and why they could never deliver on their promises and come back with a new focus on the things that are really important to the American people.

If they can't do that, then let them stay out of power until they do.

What Happened on Proposition 8

The problem with being in a big tent party is that there are so many damn people in the tent and they all want something, usually all at the same time.

One day after a huge and historic victory for the Democratic party and already chinks are showing up in their armor.

At issue is the passing of Proposition 8 in California. Prop 8 amends the California constitution to make gay marriage illegal. The proposition was written by California conservatives with two motives. The first most obvious was to roll back the advances of the gay rights movement, but there was a second, less obvious motive, to encourage right wing voters to the polling booth in an election when John McCain needed all the votes he could get.

The only thing is, it didn't turn out that way. Obama won big in California, but prop 8 won too, by a similarly large margin.

Mathematically, there are only two ways that could have happened. Either a whole bunch of right wing people voted for Prop. 8, but didn't vote for McCain, or, much more likely, an awful lot of people who voted for Obama also voted in favor of Prop. 8.

We've heard before that some race minority Democrats weren't supportive of gay rights issues and this may have been the proof of it. If that's what happened, then Democrats will need to move pretty quickly to close ranks or there could be some problems.

It would be a problem for the party if some people thought they were faithful to the party by voting for Obama, but the party wasn't faithful to them by allowing Prop. 8 to pass in California. Adding similar measures with similar results in Florida and Arizona and the scope of the problem becomes apparent.

It's not just the seven to nine percent of the population who votes for gay rights issues because they themselves are gay that's at stake here. It's the twenty to twenty-five percent of the population who classify themselves as white, educated liberals that also support gay rights issues. Combined, you're looking at fifty to sixty percent of the Democratic party that's understandably upset that members of their own party voted against one of their key issues.

The black church leaders are major players here. If they don't push their faithful to start voting for gay rights issues then this divide in the party could widen.

Right now, there's no where for these people to go. It's not like they can up and join the Republican Party. But what they can do is stop voting for each other's issues, effectively handing whole elections to the Republicans.

If I were Barak Obama, I'd hit this issue pretty hard, pretty early: before the inauguration. If I were Howard Dean, I'd be working pretty hard behind-the-scenes to let these church leaders know what's at stake if they don't close ranks on this issue.

Ronald Reagan used to say the new Golden Rule was "thou shalt not speak ill of another Republican." For the Democrats there might need to be a new Golden Rule as well, "thou shalt not vote against another Democrat's important issues."